UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549


________________





FORM
      10-QSB


________________


**þ**  QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
      the
      quarterly period ended June 30, 2006





**o**  TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT





Commission
      File Number: 000-30556





________________





**PATIENTS
      & PHYSICIANS, INC.**


(Exact
      Name of Small Business Issuer as Specified in Its Charter)


________________




**Delaware**
            
            **11-3210792**(State
                or Other Jurisdiction of
              Incorporation
                or Organization)
            
            (I.R.S.
                Employer Identification
                No.)





432
      Park
      Ave. South, 13 th Floor,
      New York, NY 10016


(Address
      of Principal Executive Offices)





(212)
      340-9100


(Issuer's
      Telephone Number, Including Area Code)




Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days.      Yes þ  No  ̈ 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of The Exchange Act)    Yes  ̈ No þ
  APPLICABLE
        ONLY TO CORPORATE ISSUERS
  State
        the
        number of shares outstanding of each of the issuer’s classes of common equity,
        as of the latest practicable date: 55,884,347 shares
        of
        Common Stock, $0.001 par value, outstanding as of August 10, 2006.
  Transitional
        Small Business Disclosure Format (check one): Yes  ̈ No þ
  
  **PATIENTS
        & PHYSICIANS, INC.**
 
 INDEX
  **PART
                    I. FINANCIAL INFORMATION**
                
                
                Page**Item
                    1. Financial Statements.**
                
                
                3Condensed
                    Consolidated Financial Statements:
                
                
                3Condensed
                    Consolidated Balance Sheets, as of June 30, 2006 (unaudited)and
                    December 31, 2005
                
                
                3Condensed
                    Consolidated Statements of Operations, for the threeand
                    six months ended June 30, 2006 and 2005 and for theperiod
                    from inception (July 9, 2002) to June 30, 2006 (unaudited)
                
                
                4Condensed
                    Consolidated Statement of Stockholders’ Equity (Deficit),for
                    the period from inception (July 9, 2002) to June 30, 2006
                    (unaudited)
                
                
                5Condensed
                    Consolidated Statements of Cash Flows, for the six monthsended
                    June 30, 2006 and 2005 and for the period from inception(July
                    9, 2002) to June 30, 2006 (unaudited)
                
                
                6Notes
                    to Condensed Consolidated Financial Statements (unaudited)
                
                
                7**Item
                    2. Management’s Discussion and Analysis or Plan of Operation.**
                
                
                19**Item
                    3. Controls and Procedures.**
                
                
                30**PART
                    II. OTHER INFORMATION**
                
                
                31**Item
                    1. Legal Proceedings.**
                
                
                31**Item
                    2. Unregistered Sales of Equity Securities and Use of
                    Proceeds.**
                
                
                31**Item
                    3. Defaults Upon Senior Securities.**
                
                
                31**Item
                    4. **Submission
                    of Matters to a Vote of Security
                    Holders.****
                
                
                31**Item
                    5. Other Information.**
                
                
                31**Item
                    6. Exhibits.**
                
                
                31**SIGNATURES**
                
                
                32
  2
   **PART
                  I**
                **FINANCIAL
                  INFORMATION**
                
                **Item
                  1. Financial Statements.********Patients
                  & Physicians, Inc. and Subsidiary****(formerly
                  known as Finity Holdings, Inc.)****(A
                  Development Stage Company)****Condensed
                  Consolidated Balance Sheets****As
                  of June 30, 2006 (unaudited) and December 31,
                  2005**
  **ASSETS**
              
              June
                  30, 2006
                (Unaudited)
              
              December
                  31, 2005
                (Note
                  2)**Current
                  Assets:**Cash
                  and cash equivalents
              
              $
              3,808,468
              
              $
              138,344Prepaid
                  expenses and other current assets
              
              
              178,681
              
              
              327,978Total
                  current assets
              
              
              3,987,149
              
              
              466,322Property
                  and equipment, net
              
              
              536,695
              
              
              581,165Debt
                  issuance costs, net
              
              
              197,993
              
              
              58,379Restricted
                  cash
              
              
              135,000
              
              
              135,000**Total
                  assets**
              
              $
              4,856,837
              
              $
              1,240,866**LIABILITIES
                  AND STOCKHOLDERS' DEFICIT****Current
                  Liabilities:**Accounts
                  payable
              
              $
              230,426
              
              $
              534,651Accrued
                  liabilities
              
              
              257,502
              
              
              354,748Bank
                  overdraft
              
              
              —
              
              
              68,478Due
                  to stockholder
              
              
              —
              
              
              18,130Notes
                  payable, current portion
              
              
              4,608,508
              
              
              2,850,000Total
                  current liabilities
              
              
              5,096,436
              
              
              3,826,007Notes
                  payable, net of current portion
              
              
              1,047,531
              
              
              —**Total
                  liabilities**
              
              
              6,143,967
              
              
              3,826,007**COMMITMENTS
                  AND CONTINGENCIES****Redeemable
                  Series A Convertible Preferred Stock;**$0.001
                  par value, 10,948,906 shares authorized, 0 shares issued and outstanding
                  at June
                  30, 2006 and 10,948,906 shares authorized, 7,255,042 shares
                  issuedand
                  outstanding (liquidation value of $1,987,881) at December 31,
                  2005
              
              
              —
              
              
              1,827,639**Redeemable
                  Series B Convertible Preferred Stock;**$0.001
                  par value, 7,692,308 shares authorized, 0 shares issuedand outstanding  atJune
                  30, 2006 and 7,692,308 shares authorized, 5,205,768 shares
                  issuedand
                  outstanding (liquidation value of $3,383,748) at December 31,
                  2005
              
              
              —
              
              
              3,350,988**Stockholders'
                  Deficit:**Preferred
                  stock, $0.001 par value: 5,000,000 shares authorized, 0
                  sharesissued
                  and outstanding at June 30, 2006 and 11,358,786 sharesauthorized,
                  0 shares issued and outstanding at December 31, 2005
              
              
              —
              
              
              —Common
                  stock, $0.001 par value: 125,000,000 shares authorized,55,884,347
                  shares issued and outstanding at June 30, 2006 and70,000,000
                  shares authorized, 34,567,560 shares issued andoutstanding
                  at December 31, 2005
              
              
              55,884
              
              
              34,567Additional
                  paid-in capital
              
              
              16,617,415
              
              
              3,652,905Deficit
                  accumulated during the development stage
              
              
              (17,960,429
              )
              
              (11,451,240
              )Total
                  stockholders' deficit
              
              
              (1,287,130
              )
              
              (7,763,768
              )**Total
                  liabilities and stockholders' deficit**
              
              $
              4,856,837
              
              $
              1,240,866
  See
        Notes
        to Condensed Consolidated Financial Statements
  3
  **Patients
                  & Physicians, Inc. and Subsidiary****(formerly
                  known as Finity Holdings, Inc.)****(A
                  Development Stage Company)****Condensed
                  Consolidated Statements of Operations****For
                  the three and six months ended June 30, 2006 and 2005 and for the
                  period
                  from inception (July 9, 2002) to June 30, 2006****(unaudited)**
  Three
                  Months Ended
              
              
              Six
                  Months Ended
              
              
              For
                  the period from inception (July 9, 2002) to
                  June 30,June
                  30(Unaudited)
              
              
              June
                  30(Unaudited)
              
              
              20062006
              
              
              2005
              
              
              2006
              
              
              2005
              
              
              (Unaudited)Subscription
                  revenue
              
              $
              10,172
              
              $
              —
              
              $
              17,186
              
              $
              —
              
              $
              22,380Costs
                  of revenue
              
              
              1,523
              
              
              —
              
              
              3,721
              
              
              —
              
              
              6,371Gross
                  profit
              
              
              8,649
              
              
              —
              
              
              13,465
              
              
              —
              
              
              16,009Operating
                  expenses:Membership
                  services
              
              
              769,156
              
              
              601,395
              
              
              1,510,250
              
              
              1,125,071
              
              
              4,723,550Selling,
                  general and administrative
              
              
              1,505,178
              
              
              2,035,123
              
              
              3,002,476
              
              
              2,851,786
              
              
              10,416,146Depreciation
                  and amortization
              
              
              33,997
              
              
              48,930
              
              
              85,119
              
              
              158,529
              
              
              375,406Impairment
                  of long-lived assets
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              492,054Total
                  operating expenses
              
              
              2,308,331
              
              
              2,685,448
              
              
              4,597,845
              
              
              4,135,386
              
              
              16,007,156Loss
                  from operations
              
              
              (2,299,682
              )
              
              (2,685,448
              )
              
              (4,584,380
              )
              
              (4,135,386
              )
              
              (15,991,147
              )Interest
                  income
              
              
              14,343
              
              
              3,048
              
              
              25,907
              
              
              5,119
              
              
              38,643Amortization
                  of debt discounts anddebt
                  issuance costs
              
              
              (1,008,454
              )
              
              —
              
              
              (1,673,368
              )
              
              —
              
              
              (1,673,368
              )Interest
                  expense
              
              
              (179,920
              )
              
              (125
              )
              
              (277,348
              )
              
              (1,900
              )
              
              (334,557
              )Loss
                  before provision for income taxes
              
              
              (3,473,713
              )
              
              (2,682,525
              )
              
              (6,509,189
              )
              
              (4,132,167
              )
              
              (17,960,429
              )Provision
                  for income taxes
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Net
                  loss
              
              $
              (3,473,713
              )
              $
              (2,682,525
              )
              $
              (6,509,189
              )
              $
              (4,132,167
              )
              $
              (17,960,429
              )Accretion
                  of preferred stock
              
              
              (187,052
              )
              
              (5,995
              )
              
              (193,858
              )
              
              (11,557
              )Net
                  loss attributable to common stockholders
              
              $
              (3,660,765
              )
              $
              (2,688,520
              )
              $
              (6,703,047
              )
              $
              (4,143,724
              )Weighted
                  average number of shares outstanding, basic and diluted
              
              
              43,220,608
              
              
              34,567,310
              
              
              41,513,065
              
              
              33,562,476Net
                  loss per share, basic and diluted
              
              $
              (0.08
              )
              $
              (0.08
              )
              $
              (0.16
              )
              $
              (0.12
              )
 See
          Notes
          to Condensed Consolidated Financial Statements
 4
  **Patients
                  & Physicians, Inc. and Subsidiary****(formerly
                  known as Finity Holdings, Inc.)****(A
                  Development Stage Company)****Condensed
                  Consolidated Statements of Stockholders' Equity
                  (Deficit)****For
                  the period from inception (July 9, 2002) to June 30, 2006
                  (unaudited)**
  DeficitAccumulated
              
              
              
              TotalCommon
                  Stock
              
              
              Additional
                      Paid-in
              
              
              
              During
                  the Development
              
              
              
              Stockholders'EquityShares
              
              
              
              Amount
              
              
              Capital
              
              
              
              Stage
              
              
              
              (Deficit)**Balances
                  at July 9, 2002 (inception)**
              
              
              —
              
              
              $
              —
              
              $
              —
              
              
              $
              —
              
              
              $
              —Issuance
                  of common stock to founders at $0.001 per share in August
                  2002
              
              
              16,000,000
              
              
              
              16,000
              
              
              —
              
              
              
              —
              
              
              
              16,000Sale
                  of common stock at $0.044 per share in August 2002
              
              
              2,857,150
              
              
              
              2,857
              
              
              122,143
              
              
              
              —
              
              
              
              125,000Net
                  loss
              
              
              —
              
              
              
              —
              
              
              —
              
              
              
              (107,271
              )
              
              
              (107,271
              )**Balances
                  at December 31, 2002**
              
              
              18,857,150
              
              
              
              18,857
              
              
              122,143
              
              
              
              (107,271
              )
              
              
              33,729Issuance
                  of common stock in exchange for goods and services at $0.056 per
                  share in
                  August 2003
              
              
              13,678,910
              
              
              
              13,679
              
              
              746,321
              
              
              
              
              
              
              
              760,000Issuance
                  of common stock to employees at $0.056 per share in August
                  2003
              
              
              1,510,000
              
              
              
              1,510
              
              
              82,386
              
              
              
              
              
              
              
              83,896Cancellation
                  of founders' shares at $0.001 per share in August 2003
              
              
              (3,510,000
              )
              
              
              (3,510
              )
              
              3,510
              
              
              
              —
              
              
              
              —Issuance
                  of options to purchase common stock to employees for
                  services
              
              
              —
              
              
              
              —
              
              
              37,243
              
              
              
              —
              
              
              
              37,243Net
                  loss
              
              
              —
              
              
              
              —
              
              
              —
              
              
              
              (495,895
              )
              
              
              (495,895
              )**Balances
                  at December 31, 2003**
              
              
              30,536,060
              
              
              
              30,536
              
              
              991,603
              
              
              
              (603,166
              )
              
              
              418,973Exercise
                  of stock options at $0.035 per share in August 2004
              
              
              1,000,000
              
              
              
              1,000
              
              
              34,000
              
              
              
              —
              
              
              
              35,000Value
                  of warrants issued in connection with the sale of Redeemable Series
                  A
                  Convertible Preferred Stock
              
              
              —
              
              
              
              —
              
              
              143,066
              
              
              
              —
              
              
              
              143,066Accretion
                  of Redeemable Series A Convertible Preferred Stock
              
              
              —
              
              
              
              —
              
              
              (16,223
              )
              
              
              —
              
              
              
              (16,223
              )Issuance
                  of options to purchase common stock to employees for
                  services
              
              
              —
              
              
              
              —
              
              
              95,162
              
              
              
              —
              
              
              
              95,162Issuance
                  of options to purchase common stock to non-employees for
                  services
              
              
              —
              
              
              
              —
              
              
              275,951
              
              
              
              —
              
              
              
              275,951Net
                  loss
              
              
              —
              
              
              
              —
              
              
              —
              
              
              
              (3,248,897
              )
              
              
              (3,248,897
              )**Balances
                  at December 31, 2004**
              
              
              31,536,060
              
              
              
              31,536
              
              
              1,523,559
              
              
              
              (3,852,063
              )
              
              
              (2,296,968
              )Exercise
                  of stock options at $0.20 per share in September 2005
              
              
              250
              
              
              
              —
              
              
              50
              
              
              
              —
              
              
              
              50Accretion
                  of Redeemable Series A Convertible Preferred Stock
              
              
              —
              
              
              
              —
              
              
              (19,473
              )
              
              
              —
              
              
              
              (19,473
              )Accretion
                  of Redeemable Series B Convertible Preferred Stock
              
              
              —
              
              
              
              —
              
              
              (4,255
              )
              
              
              —
              
              
              
              (4,255
              )Stock
                  issued in lieu of compensation at $0.525 per share in March
                  2005
              
              
              3,031,250
              
              
              
              3,031
              
              
              1,588,375
              
              
              
              —
              
              
              
              1,591,406Issuance
                  of options to purchase common stock to employees for
                  services
              
              
              —
              
              
              
              —
              
              
              243,470
              
              
              
              —
              
              
              
              243,470Issuance
                  of options to purchase common stock to non-employees for
                  services
              
              
              —
              
              
              
              —
              
              
              321,179
              
              
              
              —
              
              
              
              321,179Net
                  loss
              
              
              —
              
              
              
              —
              
              
              —
              
              
              
              (7,599,177
              )
              
              
              (7,599,177
              )**Balances
                  at December 31, 2005**
              
              
              34,567,560
              
              
              
              34,567
              
              
              3,652,905
              
              
              
              (11,451,240
              )
              
              
              (7,763,768
              )Allocation
                  of value to common stock, issued in connection with convertible
                  debt
                  financing
              
              
              7,968,950
              
              
              
              7,969
              
              
              3,215,420
              
              
              
              —
              
              
              
              3,223,389Allocation
                  of value to warrants issuedin
                  connection with convertible debt financing
              
              
              —
              
              
              
              —
              
              
              522,289
              
              
              
              —
              
              
              
              522,289Allocation
                  of value to beneficial conversion feature in connection with convertible
                  debt financing
              
              
              —
              
              
              
              —
              
              
              3,043,692
              
              
              
              —
              
              
              
              3,043,692Conversion
                  of Redeemable Series A Convertible Preferred Stock in connection
                  with
                  merger
              
              
              7,755,481
              
              
              
              7,755
              
              
              2,117,244
              
              
              
              —
              
              
              
              2,124,999Conversion
                  of Redeemable Series B Convertible Preferred Stock in connection
                  with
                  merger
              
              
              5,205,764
              
              
              
              5,206
              
              
              3,379,400
              
              
              
              —
              
              
              
              3,384,606Issuance
                  of shares in connection with merger
              
              
              174,092
              
              
              
              174
              
              
              (250
              )
              
              
              —
              
              
              
              (76
              )Exercise
                  of vested options at $0.89 per share in January 2006
              
              
              2,500
              
              
              
              2
              
              
              2,223
              
              
              
              —
              
              
              
              2,225Exercise
                  of vested options at $0.10 per share in May 2006
              
              
              75,000
              
              
              
              75
              
              
              7,425
              
              
              
              —
              
              
              
              7,500Exercise
                  of vested options at $0.20 per share in May 2006
              
              
              12,500
              
              
              
              13
              
              
              2,487
              
              
              
              —
              
              
              
              2,500Exercise
                  of vested options at $0.10 per share in June 2006
              
              
              110,000
              
              
              
              110
              
              
              10,890
              
              
              
              —
              
              
              
              11,000Exercise
                  of vested options at $0.20 per share in June 2006
              
              
              12,500
              
              
              
              13
              
              
              2,487
              
              
              
              
              
              
              
              2,500Accretion
                  of Redeemable Series A Convertible Preferred Stock
              
              
              —
              
              
              
              —
              
              
              (160,241
              )
              
              
              —
              
              
              
              (160,241
              )Accretion
                  of Redeemable Series B Convertible Preferred Stock
              
              
              —
              
              
              
              —
              
              
              (33,617
              )
              
              
              —
              
              
              
              (33,617
              )Issuance
                  of options to purchase common stock to employees for
                  services
              
              
              —
              
              
              
              —
              
              
              709,720
              
              
              
              —
              
              
              
              709,720Issuance
                  of options to purchase common stock to non-employees for
                  services
              
              
              —
              
              
              
              —
              
              
              145,341
              
              
              
              —
              
              
              
              145,341Net
                  loss
              
              
              —
              
              
              
              —
              
              
              —
              
              
              
              (6,509,189
              )
              
              
              (6,509,189
              )**Balances
                  at June 30, 2006 (unaudited)**
              
              
              55,884,347
              
              
              $
              55,884
              
              $
              16,617,415
              
              
              $
              (17,960,429
              )
              
              $
              (1,287,130
              )
 See
        Notes
        to Condensed Consolidated Financial Statements
  5
  **Patients
                  & Physicians, Inc. and Subsidiary****(formerly
                  known as Finity Holdings, Inc.)****(A
                  Development Stage Company)****Condensed
                  Consolidated Statements of Cash Flows****For
                  the six months ended June 30, 2006 and 2005 and for the period
                  from
                  inception (July 9, 2002) to June 30, 2006
                  (unaudited)**
  For
                          the six**(Unaudited)**
                
                
                For
                          the six**(Unaudited)**
                
                
                For
                    the period from inception (July 9, 2002) to June 30, 2006
                  **(Unaudited)**
 **OPERATING
                    ACTIVITIES**Net
                    loss
                
                $
                (6,509,189
                )
                $
                (4,132,167
                )
                $
                (17,960,429
                )Adjustments
                    to reconcile net loss to net cash used in operating
                    activities:Share-based
                    compensation expense
                
                
                855,061
                
                
                258,135
                
                
                1,828,066Amortization
                    of debt discounts and debt issuance costs
                
                
                1,673,368
                
                
                —
                
                
                1,673,368Depreciation
                    and amortization expense
                
                
                85,119
                
                
                158,529
                
                
                375,406Common
                    stock issued in exchange for services
                
                
                —
                
                
                —
                
                
                252,084Preferred
                    stock issued in exchange for services
                
                
                —
                
                
                —
                
                
                85,000Common
                    stock issued to employees
                
                
                —
                
                
                —
                
                
                83,896Common
                    stock issued to founders
                
                
                —
                
                
                —
                
                
                16,000Common
                    stock issued to employees in lieu of compensation
                
                
                —
                
                
                985,156
                
                
                1,591,406Note
                    payable in lieu of compensation
                
                
                —
                
                
                —
                
                
                165,000Impairment
                    of long-lived assets
                
                
                —
                
                
                —
                
                
                492,054Changes
                    in operating assets and liabilities:Prepaid
                    expenses and other current assets
                
                
                151,249
                
                
                (88,500
                )
                
                (193,125
                )Other
                    assets
                
                
                
                
                
                (4,681
                )
                
                (135,000
                )Due
                    to stockholders
                
                
                (18,130
                )
                
                (31,217
                )
                
                83,759Accounts
                    payable and accrued liabilities
                
                
                (470,024
                )
                
                (22,059
                )
                
                487,853Net
                    cash used in operating activities
                
                
                (4,232,546
                )
                
                (2,876,804
                )
                
                (11,154,662
                )**INVESTING
                    ACTIVITIES**Purchases
                    of property and equipment
                
                
                (40,649
                )
                
                (410,378
                )
                
                (979,601
                )Net
                    cash used in investing activities
                
                
                (40,649
                )
                
                (410,378
                )
                
                (979,601
                )**FINANCING
                    ACTIVITIES**Proceeds
                    from issuance of common stock
                
                
                6017
                
                
                —
                
                
                131,017Proceeds
                    from exercise of stock options
                
                
                25,725
                
                
                —
                
                
                60,775Proceeds
                    from issuance of Redeemable Series A convertible Preferred
                    Stock
                
                
                —
                
                
                —
                
                
                1,735,000Costs
                    associated with issuance of Redeemable Series A Convertible Preferred
                    Stock
                
                
                —
                
                
                —
                
                
                (52,871
                )Proceeds
                    from exercise of warrants to purchase Redeemable Series A
                    ConvertiblePreferred
                    Stock
                
                
                137,120
                
                
                —
                
                
                305,001Proceeds
                    from issuance of Redeemable Series B Convertible Preferred
                    Stock
                
                
                —
                
                
                3,383,748
                
                
                3,383,748Costs
                    associated with issuance of Redeemable Series B Convertible Preferred
                    Stock
                
                
                —
                
                
                (37,015
                )
                
                (37,015
                )Proceeds
                    from issuance of notes payable
                
                
                4,000,000
                
                
                10,000
                
                
                6,935,000Debt
                    issuance costs
                
                
                (166,943
                )
                
                —
                
                
                (209,324
                )Repayments
                    of notes payable
                
                
                (240,000
                )
                
                —
                
                
                (490,000
                )Proceeds
                    from issuance of secured convertible term notes, net
                
                
                4,181,400
                
                
                —
                
                
                4,181,400**Net
                    cash provided by financing activities**
                
                
                7,943,319
                
                
                3,356,733
                
                
                15,942,731**Net
                    increase in cash and cash equivalents**
                
                
                3,670,124
                
                
                69,551
                
                
                3,808,468**Cash
                    and cash equivalents at beginning of period**
                
                
                138,344
                
                
                3,018
                
                
                —**Cash
                    and cash equivalents at end of period**
                
                $
                3,808,468
                
                $
                72,569
                
                $
                3,808,468
 See
          Notes
          to Condensed Consolidated Financial Statements
 6
 **Patients
          & Physicians, Inc. and Subsidiary**
 **(formerly
          known as Finity Holdings, Inc.)**
 **(A
          Development Stage Company)**
 **Notes
          to Condensed Consolidated Financial Statements**
 **Nature
        of Business and Basis of Presentation**
 
 **1.**
              **Nature
                  of Business and Basis of
                  Presentation**
 
 Patients
        & Physicians, Inc. (formerly known as Finity Holdings, Inc.) (“P&P”),
        was organized on February 5, 1993. Finity Holdings, Inc. formerly operated
        through two wholly owned subsidiaries, Finity Corporation, a Texas corporation,
        and Fi-Scrip, Incorporated, a Nevada corporation ("Fi-Scrip"). Finity Holdings,
        Inc. sold all of its stock in Finity Corp. and Fi-Scrip effective June 5,
        2001.
 
 On
        June
        27, 2006, P&P closed an Exchange Agreement (the "Share Exchange") with all
        of the stockholders of Flagship Patient Advocates, Inc. (formerly known as
        Flagship Healthcare Management, Inc.) ("Flagship") whereby P&P acquired all
        of the issued and outstanding capital stock of Flagship and Flagship became
        a
        wholly-owned subsidiary of P&P. Upon completion of the Share Exchange,
        Flagship’s stockholders controlled approximately 99% of the then issued and
        outstanding common stock. Prior to the Share Exchange, P&P was a shell
        company. Subsequent to the Share Exchange (see Note 6), P&P’s business
        activities became the activities of Flagship. As a result of these factors,
        this
        transaction has been treated as a reverse merger, and a capital transaction,
        equivalent to the issuance of stock by Flagship for P&P’s net assets and,
        accordingly, the historical financial statements prior to June 27, 2006 are
        those of Flagship. All share and per share data prior to the Share Exchange
        have
        been restated to reflect the stock issuances and the effect of the closing
        of
        the Share Exchange.
 
 U.S.
        Open
        Healthcare Management, Inc. (“USOH”) was incorporated under the laws of the
        State of New York on July 9, 2002. Flagship was incorporated under the laws
        of
        the State of Delaware on February 11, 2004. On February 18, 2004, USOH entered
        into an Agreement and Plan of Merger (the “Merger”) with Flagship. All of the
        outstanding shares of USOH common stock were converted into Flagship common
        stock, and the net assets of USOH were contributed to Flagship.
  All
        references to “Company” shall apply to Patients & Physicians, Inc. and
        Flagship Patient Advocates, Inc.
 
 The
        Company’s activities to date have been focused on developing a membership-based
        specialty healthcare advocacy company providing physician referrals, on a
        priority basis, emergent care needs and air evacuation to its members, all
        linked by a sophisticated management system.
  As
        the
        Company has not yet commenced its principal business operations, at June
        30,
        2006, the Company is considered to be a development stage company and, as
        such,
        the financial statements presented herein are presented in accordance with
        Statement of Financial Accounting Standards (“SFAS”) No. 7.
  The
        accompanying condensed consolidated financial statements have been prepared
        on a
        going concern basis. As shown in the accompanying condensed consolidated
        financial statements, Flagship has incurred losses in the development stage
        totaling $17,960,429 for the period from inception (July 9, 2002) to June
        30,
        2006. These factors, among others, indicate that there is substantial doubt
        about the Company’s ability to continue as a going concern. The financial
        statements do not include any adjustments that might result from the outcome
        of
        this uncertainty.
  7
 **Patients
          & Physicians, Inc. and Subsidiary**
 **(formerly
          known as Finity Holdings, Inc.)**
 **(A
          Development Stage Company)**
 **Notes
          to Condensed Consolidated Financial Statements**
  Management
        recognizes that the Company’s continuation as a going concern is dependent upon
        its ability to generate sufficient cash flow to allow the Company to continue
        the development of its business plan and satisfy its obligations on a timely
        basis. Management believes that such cash flows will be funded by additional
        equity and/or debt financings through the time in which the Company evolves
        from
        the development stage and generates sufficient positive cash flows from its
        operations, if ever. However, there can be no assurance that management’s plans
        will be able to be achieved.
  **2.**
              **Summary
                  of Significant Accounting
                  Policies**
 
 **Interim
        financial statements**
 
 The
        accompanying unaudited condensed consolidated financial statements have been
        prepared pursuant to the rules and regulations of the Securities and Exchange
        Commission ("SEC"). Certain information and footnote disclosures normally
        included in financial statements prepared in accordance with accounting
        principles generally accepted in the United States of America have been omitted
        pursuant to such rules and regulations. However the Company believes that
        the
        disclosures are adequate to make the information presented not misleading.
        The
        financial statements reflect all adjustments (consisting only of normal
        recurring adjustments) that are, in the opinion of management, necessary
        for a
        fair presentation of the Company's financial position and results of operations.
        The operating results for the three and six months ended June 30, 2006 and
        2005
        are not necessarily indicative of the results to be expected for any other
        interim period of the remainder of this or any future year. The accompanying
        unaudited condensed consolidated financial statements should be read in
        conjunction with the Company's audited financial statements for the year
        ended
        December 31, 2005 included in our Definitive Proxy Statement filed with the
        SEC
        on June 15, 2006.
 
 **Consolidation**
 
 The
        condensed consolidated financial statements include the accounts of P&P and
        Flagship, its wholly-owned subsidiary. All significant intercompany transactions
        and balances have been eliminated in consolidation.
 
 **Use
        of Estimates**
 
 The
        preparation of the Company’s financial statements in conformity with accounting
        principles generally accepted in the United States of America (“GAAP”) requires
        management to make estimates and assumptions that affect the reported amounts
        of
        assets and liabilities and disclosure of contingent assets and liabilities
        at
        the date of the financial statements and the reported amounts of revenues,
        if
        any, and expenses during the reporting period. The accounting estimates that
        require management’s most difficult and subjective judgments include
        capitalization of certain assets, depreciable/amortizable lives, impairment
        of
        long-lived assets, and the fair value of common stock and options issued
        for
        services as well as the allocation of proceeds from the issuance of debt
        and
        equity instruments. Because of the uncertainty inherent in such estimates,
        actual results may differ from these estimates.
  **Loss
        Per Share**
  Basic
        loss per share is computed by dividing net loss by the weighted average number
        of common shares outstanding for the period.
 The
          Company has excluded all convertible preferred stock and outstanding stock
          options from the calculation of diluted loss per share because all such
          securities are considered anti-dilutive. Accordingly, diluted loss per
          share
          equals basic loss per share. The total number of potential common shares
          excluded from the calculation of diluted loss per share for the three and
          six
          months ended June 30, 2006 was 2,830,250 and for the three and six months
          ended
          June 30, 2005 was 13,736,108.
  8
 **Patients
          & Physicians, Inc. and Subsidiary**
 **(formerly
          known as Finity Holdings, Inc.)**
 **(A
          Development Stage Company)**
 **Notes
          to Condensed Consolidated Financial Statements**
  **Reclassifications**
  Certain
        reclassifications have been made in the prior period financial statements
        to
        conform to the current period presentation.
  **Cash
        and Cash Equivalents**
  The
        Company considers all short term, highly liquid investments purchased with
        a
        maturity at the time of purchase of three months or less to be cash
        equivalents.
  **Restricted
        Cash**
  Included
        in other assets on the accompanying condensed consolidated balance sheets
        as of
        June 30, 2006 and December 31, 2005 is $135,000, which is being held to secure
        a
        letter of credit, related to the Company’s office space operating
        lease.
  **Property
        and Equipment**
  Property
        and equipment, consisting principally of computer equipment and capitalized
        purchased and internally developed software programs, are recorded at cost.
        Depreciation and amortization are provided, using straight-line methods,
        in
        amounts sufficient to relate the cost of depreciable and amortizable assets
        to
        operations over their estimated useful lives. Repairs and maintenance are
        charged to operations as incurred.
 
 The
        Company has adopted Statement of Position 98-1, *Accounting
        for the Costs of Computer Software Developed or Obtained for Internal
        Use* .
        This
        statement requires that certain costs incurred in purchasing or developing
        software for internal use be capitalized as internal use software development
        costs and included in fixed assets. Amortization of the software will begin
        when
        the software is ready for its intended use.
 
 The
        Company has adopted the SEC’s Staff Accounting Bulletin No. 48, *Transfers
        of Nonmonetary Assets by Promoters or Shareholders* .
        This
        bulletin requires that transfers of nonmonetary assets or services to the
        Company by its shareholders in exchange for stock be recorded as the
        transferors’ historical cost basis determined under GAAP.
  **Long-Lived
        Assets**
  When
        changes in circumstance require, the Company assesses the likelihood of
        recovering the cost of long-lived assets based on its expectations of future
        profitability and undiscounted cash flows. These factors, along with
        management’s plans with respect to the operations, are considered in assessing
        the recoverability of long-lived assets.
  **Concentrations
        of Credit Risk**
  Financial
        instruments that potentially subject the Company to concentrations of credit
        risk consist of cash and cash equivalents. The Company reduces credit risk
        by
        placing its cash and cash equivalents with major financial institutions with
        high credit ratings. At times, such amounts may exceed federally insured
        limits.
  9
 **Patients
          & Physicians, Inc. and Subsidiary**
 **(formerly
          known as Finity Holdings, Inc.)**
 **(A
          Development Stage Company)**
 **Notes
          to Condensed Consolidated Financial Statements**
  **Fair
        Value of Financial Instruments**
  The
        fair
        values of the Company’s assets and liabilities that qualify as financial
        instruments under Statement of Financial Accounting Standards (“SFAS”) No. 107
        approximate their carrying amounts presented in the accompanying condensed
        consolidated balance sheets at June 30, 2006 and December 31, 2005.
  The
        Company had accounted for redeemable preferred stock in accordance with the
        provisions of SFAS No. 150, *Accounting
        for Certain Financial Instruments with Characteristics of Both Liabilities
        and
        Equity* (“SFAS
        No. 150”). SFAS No. 150 requires the classification of certain financial
        instruments as liabilities, including instruments issued in the form of shares
        that are mandatorily redeemable. As the Redeemable Series A and Series B
        Convertible Preferred Stock issued by the Company were not mandatorily
        redeemable at a specified or determinable date, or upon an event that is
        certain
        to occur, the Company was not required to account for these instruments as
        liabilities under the provisions of SFAS No. 150 and as such has presented
        the
        Redeemable Series A and Series B Convertible Preferred Stock in the mezzanine
        section of the accompanying condensed consolidated balance sheet at December
        31,
        2005. All of the outstanding shares of the Redeemable Series A and Series
        B
        Convertible Preferred Stock was exchanged for newly issued Patients &
Physicians, Inc.’s common stock as a result of the Share Exchange (Note
        6).
  The
        Company accounts for derivative instruments in accordance with SFAS No. 133, *Accounting
        for Derivative Instruments and Hedging Activities* ,
        as
        amended, (“SFAS No. 133”) which establishes accounting and reporting standards
        for derivative instruments and hedging activities, including certain derivative
        instruments imbedded in other financial instruments or contracts and requires
        recognition of all derivatives on the balance sheet at fair value. Accounting
        for the changes in the fair value of the derivative instruments depends on
        whether the derivatives qualify as hedge relationships and the types of the
        relationships designated are based on the exposures hedged. Changes in the
        fair
        value of derivative instruments which are not designated as hedges are
        recognized in earnings as other income (loss). The Company has issued financial
        instruments which have required a determination of the fair value of certain
        related derivatives, where quoted market prices were not published or readily
        available at the date of issuance. The Company bases its fair value
        determinations on an evaluation of the facts and circumstances and valuation
        techniques that require judgments and estimates. At June 30, 2006, the Company
        had no derivative instruments.
  **Revenue
        Recognition**
  The
        Company recognizes revenues in accordance with SEC Staff Accounting Bulletin
        No.
        101, *Revenue
        Recognition in Financial Statements* (“SAB
        No. 101”) as amended by SEC Staff Accounting Bulletin No. 104, *Revenue
        Recognition* ,
        revised
        and updated (“SAB No. 104”), which stipulates that revenue generally is realized
        or realizable and earned, once persuasive evidence of an arrangement exists,
        delivery has occurred or services have been rendered, the fee is fixed or
        determinable and collectibility is reasonably assured. The Company sells
        memberships to individuals and institutions for access to its healthcare
        service
        offerings. The Company recognizes revenue ratably, over the life of the
        membership. The Company recognized $10,172 and $17,186 of revenue for the
        three
        and six months ended June 30, 2006, respectively.
  10
 
  **Patients
            & Physicians, Inc. and Subsidiary**
 **(formerly
            known as Finity Holdings, Inc.)**
 **(A
            Development Stage Company)**
 **Notes
            to Condensed Consolidated Financial Statements**
  **Deferred
            Revenue**
 
 At
            June
            30, 2006 and December 31, 2005, the Company had deferred revenue of $24,833
            and
            $9,389, respectively, reflected in accrued liabilities.
  **Stock-Based
            Compensation**
  The
            name
            of the plan is the Flagship Healthcare Management, Inc. 2004 Stock Option
            and
            Grant Plan (the “Plan”) and will be adopted by P&P. The purpose of the Plan
            is to encourage and enable the employees, directors and consultants of
            the
            Company, and its Subsidiaries, upon whose judgment, initiative and efforts
            the
            Company largely depends for the successful conduct of its business to
            acquire a
            proprietary interest in the Company. It is anticipated that providing
            such
            persons with a direct stake in the Company’s welfare will assure a closer
            identification of their interests with those of the Company, thereby
            stimulating
            their efforts on the Company’s behalf and strengthening their desire to remain
            with and further the interests of the Company. The Company has reserved
            9,000,000 shares of common stock for issuance under the terms of the
            Plan.
 The
        Company accounts for share-based compensation to employees and directors
        in
        accordance with SFAS No. 123(R) (revised 2004), *Share-Based
        Payment* (“SFAS
        No. 123(R)”), which requires the recognition of compensation expense for
        employee stock options and other share-based payments. SFAS No. 123(R) was
        issued in December 2004. Under this method of adoption, expense related to
        employee stock options and other share-based payments is recognized over
        the
        relevant service period based on the fair value of each stock option
        grant.
 
 The
        Company has accounted for non-employee compensation expense in accordance
        with
        Emerging Issues Task Force (“EITF”) Issue No. 96-18, *Accounting
        for Equity Instruments That Are Issued to Other Than Employees for Acquiring,
        or
        in Conjunction with Selling, Goods or Services* (“EITF
        96-18”), which requires non-employee stock options to be measured at their fair
        value as of the earlier of the date at which a commitment for performance
        to
        earn the equity instruments is reached (“performance commitment date”) or the
        date at which performance is complete (“performance completion date”).
        Accounting for non-employee stock options which involve only performance
        conditions when no performance commitment date or performance completion
        date
        has occurred as of the interim financial reporting date requires measurement
        at
        the instruments then-current fair value.
 
 The
        Company has followed the guidance outlined in FASB Interpretations (“FIN”) No.
        28, *Accounting
        for Stock Appreciation Rights and Other Variable Stock Option or Award
        Plans* (“FIN
        28”) as it relates to computing expense when appreciation rights vest over time.
        As of June 30, 2006, the Company accounted for 2,335,000 options under the
        guidance of EITF 96-18.
 
 The
        fair
        value of each stock option grant to employees is estimated on the date of
        grant.
        The fair value of each stock option grant to non-employees is estimated on
        the
        applicable performance commitment date, performance completion date, or interim
        financial reporting date. A Black-Scholes option-pricing model, applying
        the
        following weighted average assumptions, was used to estimate the fair value
        for
        employee and non-employee stock options issued during each of the applicable
        fiscal years:
 
 11
 **Patients
          & Physicians, Inc. and Subsidiary**
 **(formerly
          known as Finity Holdings, Inc.)**
 **(A
          Development Stage Company)**
 **Notes
          to Condensed Consolidated Financial Statements**
  Six
                  months ended June 30, 2006
              
              
              Six
                  months ended June 30, 2005Dividend
                  yield
              
              
              0.00
              %
              
              0.00
              %Expected
                  volatility
              
              
              68.83
              %
              
              80.67
              %Risk-free
                  rate
              
              
              4.58%
                  to 5.15
              %
              
              3.91%
                  to 4.50
              %Expected
                  life of options
              
              
              10
                  years
              
              
              10
                  years
 
 The
        Company has made an evaluation as to which options or other equity instruments
        will ultimately vest and assumed a forfeiture rate of 20% when computing
        employee stock option expense for 2006 and 2005.
  **Income
        Taxes**
  Deferred
        income tax assets and liabilities are recognized for the future tax consequences
        attributable to differences between the financial statement carrying amounts
        of
        existing assets and liabilities and their respective tax bases and operating
        loss and tax credit carryforwards. Deferred tax assets and liabilities are
        measured using enacted tax rates expected to apply to taxable income in the
        years in which those temporary differences are expected to be recovered or
        settled. Deferred tax assets are reduced by a valuation allowance if it is
        more
        likely than not that the tax benefits will not be realized. The ultimate
        realization of deferred tax assets depends upon the generation of future
        taxable
        income during the periods in which those temporary differences become
        deductible.
  **Comprehensive
        Income (Loss)**
  SFAS No. 130, *Reporting
        Comprehensive Income* ,
        establishes standards for reporting and presentation of comprehensive income
        (loss) and its components in a full set of financial statements. The statement
        requires additional disclosures in the financial statements for certain items;
        it does not affect the Company’s financial position or results of operations.
        The Company had no comprehensive income (loss) items for the period from
        inception (July 9, 2002) to June 30, 2006.
 
 **3.** **Stock-Based
        Compensation**
  The
        Company recognized compensation expense of $110,061 and $52,210 for the three
        months ended June 30, 2006 and 2005, respectively, and $645,874 and $82,505
        for
        the six months ended June 30, 2006 and 2005, respectively, as a result of
        issuing options to employees, which is included in selling, general and
        administrative in the accompanying condensed consolidated statements of
        operations. In addition, the Company recognized compensation expense of $18,327
        and $7,305 for the three months ended June 30, 2006 and 2005, respectively,
        and
        $63,847 and $12,695 for the six months ended June 30, 2006 and 2005,
        respectively, as a result of issuing options to employees, which is included
        in
        membership services in the accompanying condensed consolidated statements
        of
        operations.
  The
        Company recognized compensation expense of $126,096 and $47,689 for the three
        months ended June 30, 2006 and 2005, respectively, and $145,341 and $162,935
        for
        the six months ended June 30, 2006 and 2005, respectively, as a result of
        issuing options to non-employees, which is included in membership services
        in
        the accompanying condensed consolidated statements of operations.
  12
 **Patients
          & Physicians, Inc. and Subsidiary**
 **(formerly
          known as Finity Holdings, Inc.)**
 **(A
          Development Stage Company)**
 **Notes
          to Condensed Consolidated Financial Statements**
  The
        following is a summary of the Company’s stock option activity for the six months
        ended June 30, 2006:
 
 Options
              
              
              Weighted
                  Average Exercise Price
              
              
              Weighted
                  Average
                Fair
                  ValueOptions
                  outstanding at December 31, 2005
              
              
              5,082,000
              
              $
              0.140
              
              $
              0.410Option
                  granted
              
              
              2,331,000
              
              
              0.620
              
              
              0.180Options
                  exercised
              
              
              (212,500
              )
              
              0.120
              
              
              0.710Options
                  cancelled
              
              
              (317,500
              )
              
              0.580
              
              
              0.430Outstanding
                  at June 30, 2006
              
              
              6,883,000
              
              $
              0.387
              
              $
              0.526Exercisable
                  at June 30, 2006
              
              
              2,830,250
              
              $
              0.193
              
              $
              0.396
  The
          options outstanding at June 30, 2006 have exercise prices ranging from
          $0.035 to
          $0.90 per share, have a weighted average remaining contractual life of
          approximately 8.7 years, and an intrinsic value of $5,648,675. The options
          outstanding at June 30, 2005 had exercise prices ranging from $0.035 to
          $0.525
          per share, had a weighted average remaining contractual life of approximately
          9
          years, and an intrinsic value of $2,428,638.
 
 As
          of
          June 30, 2006, there were 2,830,250 exercisable options with a total intrinsic
          value of $2,001,200, and a weighted average remaining contractual term
          of
          approximately 8.2 years.
  As
          of
          June 30, 2005 there were 1,888,000 exercisable options with a total intrinsic
          value of $1,526,725, and a weighted average remaining contractual term
          of
          approximately 8.77 years.
 As
        of
        June 30, 2006, there was $1,279,670 of total deferred compensation cost related
        to options issued to employees that will be recognized in expense over a
        weighted average period of 1.8 years.
  **4.**
              **Debt**
 
 Debt
        financings consist of the following as of June 30, 2006:
  June
                  30, 2006 (Unaudited)Principal
              
              
              Unamortized
                  Debt Discount
              
              
              
              NetLaurus
                  Convertible Notes, due in installments commencing on February 1,
                  2007
              
              $
              4,100,000
              
              $
              (3,153,507
              )
              
              $
              946,493Junior
                  Notes, due in installments commencing on February 1, 2007
              
              
              3,000,000
              
              
              (2,300,454
              )
              
              
              699,546Apollo
                  Medical Partners, LP due in full June 7, 2007
              
              
              2,700,000
              
              
              -
              
              
              
              2,700,000Apollo
                  Medical Offshore Partners, LP due in full June 7, 2007
              
              
              1,300,000
              
              
              -
              
              
              
              1,300,000Loan
                  from officer, due on demand
              
              
              10,000
              
              
              -
              
              
              
              10,000Total
              
              $
              11,110,000
              
              $
              (5,453,961
              )
              
              
              5,656,039Less
                  current portion
              
              
              
              
              
              
              
              
              $
              4,608,508Long
                  term portion
              
              
              
              
              
              
              
              
              $
              1,047,531
 
 13
  **Patients
          & Physicians, Inc. and Subsidiary**
 **(formerly
          known as Finity Holdings, Inc.)**
 **(A
          Development Stage Company)**
 **Notes
          to Condensed Consolidated Financial Statements**
  *Convertible
        Notes*
  Laurus
        Notes
  On
        January 30, 2006 Flagship entered into a securities purchase agreement (the
        “Laurus Securities Agreement”) with Laurus Master Fund, Ltd. (“Laurus”). Under
        the Laurus Securities Agreement, Laurus purchased from Flagship a secured
        convertible term note (the “Laurus Convertible Note”) in an aggregate principal
        amount of $4,100,000, which is collateralized by substantially all the assets
        of
        Flagship, including an investment in Patients & Physicians, Inc. (formerly
        Finity Holdings, Inc.) held by Flagship described below (Note 6). The Laurus
        Convertible Note bears interest at 1.0% above the prime rate, with a minimum
        interest rate of 7%, and is convertible in whole or in part into common stock
        of
        the Company at a fixed conversion price of $0.90 per share at the election
        of
        Laurus.
  *Junior
        Notes*
  During
        2005, Flagship issued an aggregate of $3,100,000 in short-term notes, of
        which
        $2,050,000 was issued to officers and directors of the Company. Of the aggregate
        amount issued, $165,000 was issued to an officer of the Company in lieu of
        compensation. In February 2005, $250,000 of the amounts due to an officer
        was
        repaid. Of the aggregate amount issued, $2,850,000 was outstanding at December
        31, 2005. During January 2006 Flagship issued an additional $400,000 in
        short-term notes and repaid $240,000 of the notes issued in 2005.
  On
        January 30, 2006 Flagship entered into a securities purchase agreement (the
        “Junior Securities Agreement”) with the certain holders of Flagship’s short-term
        notes. Under the Junior Securities Agreement the note holders (the “Junior Note
        Holders”) agreed to convert $3,000,000 of the short-term notes previously issued
        into secured convertible term notes (the “Junior Notes”) in Flagship. The Junior
        Notes have substantially the same terms as the Laurus Convertible Note. The
        Junior Notes bear interest at 1.0% above the prime rate, with a minimum interest
        rate of 7% and are convertible into common stock of the Company at a fixed
        conversion price of $0.90 per share at the election of the Junior Note Holders.
  *Laurus
        and Junior Notes*
  In
        connection with the Laurus Convertible Note and the Junior Notes (collectively
        the “Convertible Notes”), Flagship issued 7,968,950 shares of common stock to
        the investors for consideration of $7,969 and issued warrants to purchase
        1,902,174 shares of common stock at an exercise price of $0.92 per share.
        The
        warrants have a term of seven years. The aforementioned common shares and
        warrants include 1,951,596 shares of common stock and warrants to purchase
        465,839 shares of common stock issued to certain shareholders and officers
        (the
“Guarantors”) who have provided a limited guarantee of the Company’s obligation
        to Laurus.
  The
        Company allocated the $7,100,000 of proceeds from the Convertible Notes based
        on
        the computed relative fair values of the debt, stock and warrant instruments
        issued to Laurus, the Junior Note Holders and the Guarantors. The common
        stock
        issued was valued based on management’s estimate of the fair value of the
        Company’s common stock of $0.90 per share which resulted in a fair value of
        $7,164,086 and relative fair value of $3,215,419 for the common stock. The
        warrants were valued using a Black-Scholes pricing model with the following
        assumptions: (1) common stock fair value of $0.90 per share, (2) expected
        volatility of 67.63%, (3) risk-free interest rate of 4.39%, (4) life of 7
        years
        and (5) no dividend, which resulted in a fair value of $522,289 for the
        warrants. The resulting relative fair value of the warrants was $299,066.
        Accordingly, the resulting relative fair value allocated to the debt component
        of $3,043,692 was used to measure the intrinsic value of the embedded conversion
        option of the Convertible Notes which resulted in a beneficial conversion
        feature of $3,043,692 recorded to additional paid-in capital. The value of
        the
        beneficial conversion feature was limited to the amount of the proceeds
        allocated to the debt component of the Convertible Notes. The aggregate amounts
        allocated to the warrants, equity instruments and beneficial conversion feature
        of $7,100,000 were recorded as a debt discount at the date of issuance of
        the
        Convertible Notes and are being amortized to interest expense using the interest
        method over the stated maturities of the Convertible Notes. The initial
        aggregate carrying value of the Convertible Notes at the time of closing
        was $0
        after the debt discounts.
  14
 **Patients
          & Physicians, Inc. and Subsidiary**
 **(formerly
          known as Finity Holdings, Inc.)**
 **(A
          Development Stage Company)**
 **Notes
          to Condensed Consolidated Financial Statements**
  Transaction
        fees totaling $318,600 paid to Laurus, or its affiliates, and the Junior
        Note
        Holders in connection with this financing were netted against the proceeds
        and
        considered in the calculation of the beneficial conversion feature. Financing
        costs of $225,321 paid to third parties associated with this financing are
        recorded as debt issuance costs and included in other assets on the accompanying
        condensed consolidated balance sheet at June 30, 2006. These costs are being
        amortized over the life of the Convertible Notes.
 During
          the three and six months ended June 30, 2006, $991,984 and $1,646,039,
          respectively, of the discount on the Convertible Notes has been amortized
          and
          included in amortization of debt discounts and debt issuance costs on the
          accompanying condensed consolidated statements of operations. Debt issuance
          costs allocated are amortized over the term of the debt using the interest
          method, which produces a constant periodic rate of return. During the three
          and
          six months ended June 30, 2006, $16,470 and $27,329, respectively, of debt
          issuance costs have been amortized and are included in amortization of
          debt
          discounts and debt issuance costs on the accompanying condensed consolidated
          statements of operations
  Commencing
        on February 1, 2007, Flagship is required to repay the Convertible Notes
        on a
        monthly basis over the following 24 months. In the event that any of the
        principal is converted into common stock, the amount converted shall be credited
        against the next monthly payment. Flagship has the option, but not the
        obligation, of prepaying any outstanding principal of the Convertible Notes
        by
        paying the principal amount, accrued interest and a redemption premium of
        30%.
  The
        Company entered into a registration rights agreement with both Laurus and
        the
        Junior Note Holders covering the registration of the common stock issued
        to
        Laurus, the Guarantors and the Junior Note Holders, the common stock underlying
        the Convertible Notes and the warrants issued to Laurus, the Guarantors and
        the
        Junior Note Holders. The Company is required to use its best efforts to file
        a
        registration statement and plans to do so upon the completion of the Share
        Exchange discussed below (Note 6).
 
 Promptly
        after the closing of the Share Exchange, P&P assumed all the outstanding
        obligations of Flagship under the Convertible Notes.
 
 *Apollo
        Short Term Convertible Notes*
 
 On
        June
        7, 2006 the Company issued notes payable to Apollo Medical Partners, LP and
        Apollo Medical Offshore Partners, LP in the amounts of $2,700,000 and
        $1,300,000, respectively (the "Term Notes"). Interest accrues at the prime
        rate
        reported in the Wall Street Journal for the business day immediately prior
        to
        the date of issuance of the Term Notes and shall be calculated based on a
        365-day year and shall be paid at maturity of the Term Notes. Any unpaid
        interest plus remaining principal on the Term Notes are due and
        payable on June 7, 2007. The Term Notes, including all accrued interest,
        shall
        become convertible into the form of securities issued in such next round
        of
        financing at the price per s hare
        of
        the securities issued in such financing.
  15
 **Patients
          & Physicians, Inc. and Subsidiary**
 **(formerly
          known as Finity Holdings, Inc.)**
 **(A
          Development Stage Company)**
 **Notes
          to Condensed Consolidated Financial Statements**
  **5.**
              **Redeemable
                  Convertible Preferred
                  Stock**
 
 *Redeemable
        Convertible Series A Preferred Stock*
 
 In
        January 2006, 500,439 warrants to purchase Redeemable Convertible Series
        A
        Preferred Stock were exercised at $0.274 for an aggregate purchase price
        of
        $131,120.
 
 In
        connection with the Share Exchange (Note 6), all of Flagship’s outstanding
        Redeemable Series A Convertible Preferred Stock were exchanged on a one-for-one
        basis for newly issued common stock of Patients & Physicians, Inc. At June
        30, 2006 there were no shares of Redeemable Series A Convertible Preferred
        Stock
        authorized and no shares issued and outstanding.
 
 *Redeemable
        Convertible Series B Preferred Stock*
 
 In
        connection with the Share Exchange (Note 6), all of Flagship’s outstanding
        Redeemable Series B Convertible Preferred Stock were exchanged on a one-for-one
        basis for newly issued common stock of Patients & Physicians, Inc. At June
        30, 2006 there were no shares of Redeemable Series B Convertible Preferred
        Stock
        authorized and no shares issued and outstanding.
  The
          Company is accreting the carrying value of its preferred stock to its redemption
          price using the effective interest method with changes recorded to additional
          paid in capital. The accretion of preferred stock results in an increase
          in loss
          per share applicable to common stockholders.
 **6.**
              **Exchange
                  Agreement**
 
 On
        January 30, 2006, Flagship entered into a Share Exchange Agreement (the “Share
        Exchange”)
        with P&P. The closing of the Share Exchange took place on June 27, 2006.
        After the closing of the Share Exchange, the minority shareholders of P&P
        own 174,092 shares of P&P’s common stock, less than 1%. P&P acquired all
        of the issued and outstanding capital stock of Flagship from the Flagship
        stockholders on a one-for-one basis in exchange for an aggregate of 55,710,255
        newly-issued shares of P&P’s common stock (the “Exchange”). Upon completion
        of the Exchange, P&P ceased to be a shell company and the operations of
        Flagship are the only operations of P&P. Since the stockholders of Flagship
        received the majority of the voting shares of P&P, P&P will carry on the
        business of Flagship, and the officers and directors of Flagship are the
        officers and directors of P&P, the transaction has been accounted for as
        Flagship being the accounting acquirer and P&P being the accounting
        acquiree. Since P&P is a non-operating shell corporation no longer meeting
        the definition of a business as defined in EITF Consensus 98-3, “Determining
        Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or
        of a
        Business”, the transaction is equivalent to Flagship issuing stock for the net
        assets of P&P accompanied by a recapitalization. The accounting is identical
        to that resulting from a reverse acquisition, except that there are no
        adjustments to the historic carrying values of the assets and
        liabilities.
  16
 **Patients
          & Physicians, Inc. and Subsidiary**
 **(formerly
          known as Finity Holdings, Inc.)**
 **(A
          Development Stage Company)**
 **Notes
          to Condensed Consolidated Financial Statements**
 
 All
          of
          the Series A Preferred Stock Holders’ Warrants outstanding as of the closing of
          the Exchange were cancelled pursuant to the terms of the warrant
          agreements.
 
 **7.**
              **Pending
                  Litigation**
 
 A
        former
        independent contractor (the “Plaintiff”) has filed a lawsuit against the Company
        and Flagship, among others. The Plaintiff alleges that he was promised
        employment with Flagship and performed services to Flagship based on these
        promises. The Plaintiff is seeking compensatory and punitive damages, including
        the issuance of additional shares of stock for these services and attorney
        fees
        in an aggregate amount of approximately $1,800,000. The Company believes
        this
        lawsuit is without merit and intends to defend it vigorously. In management’s
        opinion the final resolution of this matter will not have material impact
        on the
        financial position or results of operations of the Company.
 
 **8.**
              **Acquisition**
 
 In
        February 2006, Flagship entered into a letter of intent to acquire the assets
        of
        PEMMS Limited. (“PEMMS”), an early-stage technology company focusing on the
        Personal Health market. The transaction will provide Flagship with several
        strategic benefits, primarily the acquisition of the PEMMS Personal Electronic
        Medical Management Systems software, a proprietary secure web-based repository
        wherein an individual can store his/her own medical records to be later
        retrieved via the internet. Pursuant to the Letter of Intent, Flagship will
        acquire the assets of PEMMS for 300,000 shares of P&P common
        stock . The
        existing employees of PEMMS will become employees of Flagship and Flagship
        will
        acquire the existing contracts and assets of PEMMS. The transaction is expected
        to close in the third quarter of 2006.
 
 Prior
        to
        the Letter of Intent, Flagship had an agreement with PEMMS to license PEMMS
        proprietary software. Simultaneously, Flagship also entered into an agreement
        with PEMMS wherein PEMMS would provide all maintenance, support, and hosting
        services. During 2005, Flagship paid PEMMS $178,875 for such
        services.
 
 **9.**
              **Warrants**
 
 Outstanding
        warrants issued in connection with financings consist of the following at
        June
        30, 2006:
 
 Warrants
              
              
              Exercise
                  Price
              
              
              ExpirationLaurus
                  warrants to purchase common stock
              
              
              621,118
              
              $
              0.92
              
              
              1/31/2013Guarantor
                  warrants to purchase common stock
              
              
              465,839
              
              $
              0.92
              
              
              1/31/2013Junior
                  Note Holder warrants to purchase common stock
              
              
              815,217
              
              $
              0.92
              
              
              1/31/20131,902,174
  17
 **Patients
          & Physicians, Inc. and Subsidiary**
 **(formerly
          known as Finity Holdings, Inc.)**
 **(A
          Development Stage Company)**
 **Notes
          to Condensed Consolidated Financial Statements**
  **10.**
              **Supplemental
                  disclosure of non-cash investing and financing
                  activities**
 
 Six
                  Months Ended June 30, 2006 (Unaudited)
              
              
              Six
                  Months Ended June 30, 2005 (Unaudited)
              
              
              For
                  the period from inception (July 9, 2002) to June 30, 2006 (Unaudited)Value
                  of contributions in-kind relating to Redeemable Series A Convertible
                  Preferred Stock issued
              
              $
              —
              
              $
              —
              
              $
              85,000Value
                  of contributions in-kind relating to common stock issued
              
              $
              —
              
              $
              —
              
              $
              760,000Value
                  of warrants issued in connection with Redeemable Series A Convertible
                  Preferred Stock
              
              $
              —
              
              $
              —
              
              $
              143,066Common
                  Stock issued to founders
              
              $
              —
              
              $
              —
              
              $
              16,000Accretion
                  of Redeemable Series A Convertible Preferred Stock
              
              $
              160,241
              
              $
              9,737
              
              $
              195,937Accretion
                  of Redeemable Series B Convertible Preferred Stock
              
              $
              33,617
              
              $
              2,128
              
              $
              37,872Common
                  Stock issued in lieu of compensation
              
              $
              —
              
              $
              —
              
              $
              1,591,406Converstion
                  of Redeemable Series A Convertible Preferred Stock and Redeemable
                  Series B
                  Convertible Preferred Stock to common stock
              
              $
              5,509,605
              
              $
              —
              
              $
              5,509,605Issuance
                  of shares in connection with merger
              
              $
              (76
              )
              $
              —
              
              $
              (76
              )Cancellation
                  of founder’s shares
              
              $
              —
              
              $
              —
              
              $
              3,510Allocation
                  of value to common stock, issued in connection with convertible
                  debt
                  financings
              
              $
              3,223,389
              
              $
              —
              
              $
              3,223,389Allocation
                  of warrants issued in connection with convertible debt
                  financings
              
              $
              522,289
              
              $
              —
              
              $
              522,289Allocation
                  of value to beneficial conversion feature in connection with convertible
                  debt financings
              
              $
              3,043,692
              
              $
              —
              
              $
              3,043,692
 Issuance
                    of common stock in connection with financing
                
                $
                1,952
                
                $
                —
                
                $
                1,952
 
 18
  **Item
        2. Management's Discussion and Analysis or Plan of
        Operation**
 
 This Management's **** Discussion
        and Analysis or Plan of Operation (MD&A) contains forward-looking statements that involve known and unknown
        risks, significant uncertainties and other factors that may cause our actual
        results, levels of activity, performance or achievements to be materially
        different from any future results, levels of activity, performance or
        achievements expressed, or implied, by those forward-looking statements.
        You can
        identify forward-looking statements by the use of the words “may,” “will,”
“should,” “could,” “expects,” “plans,” “anticipates,” “believes,” “estimates,”
“predicts,” “intends,” “potential,” “proposed,” or “continue” or the negative of
        those terms. These statements are only predictions. In evaluating these
        statements, you should specifically consider various factors, including the
        risk
        factors outlined above and below. These factors may cause our actual results
        to
        differ materially from any forward-looking statements. Although we believe
        that
        the exceptions reflected in the forward-looking statements are reasonable,
        we
        cannot guarantee future results, levels of activity, performance or
        achievements. Therefore, actual results may differ materially and adversely
        from
        those expressed in any forward-looking statements. We undertake no obligation
        to
        revise or update publicly any forward-looking statements for any
        reason.
 
 All
        references to “Company”, “our”, “us”, or “we” shall apply to Patients &
Physicians, Inc. and Flagship Patient Advocates, Inc.
  **Risk
        Factors**
 
 Our
        financial condition, business, operation and prospects involve a high degree
        of
        risk. You should carefully read and consider the risks and uncertainties
        described below as well as the other information in this report before deciding
        to invest in our Company. If any of the following risks are realized, our
        business, operating results and financial condition could be harmed and the
        value of our stock could go down. This means that our stockholders could
        lose
        all or a part of their investment.
  **Risks
        Relating To Our Business**
  ***The
        Company’s business is difficult to evaluate because it has a limited operating
        history.***
  The
        Company has a limited operating history and participates in a relatively
        new and
        rapidly evolving market. The business has undergone significant transformation
        during its short history as a result of changes in the services and products
        offered, changes in market conditions, and changes in our targeted membership,
        and is expected to continue to change for similar reasons. We cannot assure
        you
        that our current business strategy will be successful in the long
        term.
  Many
        companies with business plans based on providing similar healthcare products
        and
        services have failed to be successful. We have experienced significant losses
        since inception and, even if demand from members exists, we cannot assure
        you
        that our business will be successful.
  ***The
        Company has a history of significant losses and may not be profitable in
        the
        future and has going concern considerations.***
  Flagship
        has a history of net losses and has an accumulated deficit of $17,960,429
        from
        inception through June 30, 2006. This is an unconsolidated amount does not
        include losses of P&P prior to the Exchange. Furthermore, developing the
        Company’s business strategy and expanding the Company’s services will require
        additional capital and other expenditures. Accordingly, if the Company is
        not
        able to increase its revenue, it may never achieve or sustain profitability.
        You
        should not rely on the results for any particular period as an indication
        of our
        future performance. It is possible that, in future periods, our results of
        operations may be below the expectations of public market analysts and
        investors. Fluctuations in our quarterly operating results or our inability
        to
        achieve or maintain profitability may cause volatility in the price of our
        Common Stock in the public market. In light of these factors, among others,
        our
        independent registered public accounting firm has stated that there is
        substantial doubt about our ability to continue as a going concern in their
        opinion dated March 31, 2006 on our audited financial statements. The financial
        statements do not include any adjustments that might result for the outcome
        of
        this uncertainty.
  19
 ***The
        Company may be unable to fund future growth.***
  The
        Company’s business strategy calls for expansion through an increase in sales of
        membership by its internal and external sales forces. To this end, the Company
        has decided to invest substantial funds to increase its sales and marketing
        resources in order to grow revenues .
        In
        order to implement this strategy, the
        Company will require funding for additional personnel, capital expenditures
        and
        other expenses, as well as for working capital purposes. Financing may not
        be
        available to the Company on favorable terms ,
        if at all.
        If adequate funds are not available on acceptable terms, then the Company
        may
        not be able to meet its business objectives for expansion. This, in turn,
        could
        harm the Company’s business, results of operations and financial condition. In
        addition, if the Company raises additional funds through the issuance of
        equity
        or convertible debt securities, or a combination thereof, then the shareholders
        will suffer dilution, and any new securities may have
        rights, preferences and privileges senior to those of our Common Stock.
        Furthermore, if the Company raises capital or acquires businesses by incurring
        indebtedness, the
        Company will become subject to the risks associated with indebtedness, including
        interest rate fluctuations and any financial or other covenants that the
        Company’s lender may require. Moreover, if the Company’s strategy to increase
        its sales and marketing resources in order to grow revenues does not produce
        the
        desired result, then the Company may incur significant ,
        unrecoverable expenses .
  ***The
        Company’s growth*** ***may*** ***be limited if it is unable to attract and retain qualified
        personnel.***
  The
        Company’s business is largely dependent on the skills, experience and
        performance of key members of the Company’s senior management team. The Company
        plans to increase its sales and marketing personnel ,
        as well
        as enter into agreements with independent third parties to sell products
        and
        services in
        order
        to grow revenue. The Company believes that its success depends largely on
        its
        ability to attract and retain highly-skilled and qualified technical, managerial
        and marketing personnel and enter into agreements with third parties. The
        market for
        highly skilled engineering, sales, marketing and support personnel is highly
        competitive as a result of the limited availability of technically-qualified
        personnel with the requisite understanding of the markets which the Company serves. The inability to hire
        or
        retain qualified personnel may hinder
        the Company’s ability to implement its business strategy and may harm its
        business.
  ***Lengthy
        sales and implementation cycles for the Company’s product makes it difficult to
        forecast revenues and, as a result, may have an adverse impact on the Company’s
        business.***
  The
        period from the Company’s initial contact with potential corporate buyers to the
        consummation of an agreement to offer the Company’s product to its employees is
        difficult to predict. These sales may be subject to delays due to a client’s
        internal procedures for approving such expenditures and other factors beyond
        the
        Company’s control. Implementation may be subject to delays based on the
        availability of the internal resources of the client that are needed, acceptance
        by potential members and other factors outside of the Company’s control. As a
        result, the Company has limited ability to forecast the timing of revenue
        from
        new members. This, in turn, makes it more difficult to predict the Company’s
        financial performance from quarter to quarter.
  During
        the sales cycle and the implementation period, the Company may expend
        substantial time, effort and money preparing contract proposals and negotiating
        contracts without receiving any related revenue. In addition, many of the
        expenses related to providing the Company’s services are relatively fixed in the
        short term, including personnel costs, fixed overhead, and technology and
        infrastructure costs. As a result, the Company may be unable to adjust spending
        quickly enough to offset any unexpected revenue shortfall or delay, in which
        case the Company’s results of operations would suffer. In addition, in an
        attempt to enhance the Company’s long-term competitive position, the Company may
        from time to time make decisions regarding pricing, marketing, services and
        technology that could have a near-term adverse effect on the Company’s operating
        results.
  20
  ***The
        Company faces significant competition for its products and
        services.***
  The
        markets in which the Company operates are intensely competitive, continually
        evolving and, in some cases, subject to rapid change. The Company expects
        the
        intensity of competition and the pace of change either to be maintained or
        at
        least be increased in the future. Many of the Company’s potential competitors
        may have greater financial, technical, product development, marketing and
        other
        resources than the Company. These organizations may be better known than
        the
        Company and may have more customers or users than the Company does. The Company
        cannot provide assurance that the Company will be able to compete successfully
        against these organizations or any alliances they have formed or may
        form.
  ***If
        the Company is unable to provide priority access to high quality healthcare
        that
        attracts and retains members, the Company’s revenues will be
        reduced.***
  Interest
        in the Company’s products and services is based upon the Company’s ability to
        provide members with referrals and priority access to the Company’s network
        physicians. Although the Company has been able to continue to maintain and
        expand this network, if the Company is unable to continue to do so for any
        reason, the value of a membership would diminish and membership interest
        in the
        Company products and services would be adversely affected. Similarly, the
        Company’s ability to maintain or increase the number of highly qualified
        physicians in its network is based upon the Company’s ability to provide the
        physicians with incentive to continue to participate in the network. We cannot
        assure you that the Company will be able to retain qualified physicians to
        provide referral and priority access to members. If the Company is unable
        to
        provide high quality physicians to its members, the quality of the Company’s
        products and services will be reduced.
  ***The
        Company is exposed to the general condition of the healthcare
        market.***
  The
        Company’s business is subject to global economic conditions, and in particular,
        market conditions in the healthcare industry. The Company’s operations may be
        adversely affected by
        the
        continued declines
        in employee benefit spending by large corporations and small to medium sized
        businesses .
        If
        global economic conditions worsen, or a prolonged slowdown in providing such
        benefits exists, then the Company may experience adverse operating
        results.
  ***The
        Company’s products may not achieve acceptance in the
        marketplace.***
  The
        Company intends to offer its membership based products and services to large
        corporations, small to medium sized businesses and individuals. The markets
        for
        these products are relatively new, unpredictable and rapidly evolving. Lack
        of
        acceptance in the marketplace for these new products and services could have
        a
        material adverse effect on the Company’s business, results of operations and
        financial condition.
  **Risks
        Related to Our Stock Being Publicly Traded**
  ***We
        will incur increased costs as a result of being a publicly traded
        company.***
  As
        a
        publicly traded company, we will incur legal, accounting and other expenses
        that
        we did not incur as a privately held company, including costs associated
        with
        the periodic reporting requirements applicable to a company whose securities
        are
        registered under the Securities Exchange Act of 1934, or the Exchange Act,
        recently adopted corporate governance requirements, including requirements
        under
        the Sarbanes-Oxley Act of 2002, and other rules implemented relatively recently
        by the SEC and The NASDAQ National Market. We expect these rules and regulations
        to substantially increase our legal and financial compliance costs and to
        make
        some activities more time-consuming and costly. We also expect that these
        rules
        and regulations will make it more difficult and more expensive for us to
        obtain
        directors and officers’ liability insurance.
  ***We
        do not intend to pay dividends on our Common Stock.***
  We
        have
        never declared or paid any cash dividend on our Common Stock. We currently
        intend to retain any future earnings and do not expect to pay any dividends
        in
        the foreseeable future.
  21
  ***Penny
        stock rules could make it hard to resell your shares.***
  The
        Company’s Common Stock does not meet the listing requirements for any trading
        market other than the Pink Sheets .
        We plan
        to apply for a listing on the Over the Counter Bulletin Board (the “OTCBB”).
  The OTCBB may not accept the application of any market maker to
        initiate quotations in our Common Stock.  An investor may find it more
        difficult to dispose of shares or obtain accurate quotations as to the market
        value of our Common Stock. In addition, rules promulgated by the SEC impose
        various practice requirements on broker-dealers who sell securities that
        fail to
        meet certain criteria set forth in those rules to persons other than established
        customers and accredited investors. Consequently, the liquidity of the Company’s
        securities could be impaired, not only in the number of securities which
        could
        be bought and sold, but also through delays in the timing of transactions,
        reduction in security analysts' and the news media's coverage of the Company,
        and lower prices for the Company’s securities than might otherwise be
        attained.
  ***Future
        Sales By Our Stockholders May Negatively Affect Our Stock Price And Our Ability
        To Raise Funds In New Stock Offerings.***
  Sales
        of
        our Common Stock in the public market could lower the market price of our
        Common
        Stock. Sales may also make it more difficult for us to sell equity securities
        or
        equity-related securities in the future at a time and price that our management
        deems acceptable or at all. Of the 55,884,347 shares of Common Stock outstanding
        as of August 10, 2006, 9,444,095 shares are, or will be, freely tradable
        without
        restriction, unless held by our "affiliates". The remaining 46,440,252 shares
        of
        Common Stock, which will be held by existing stockholders, including the
        officers and directors, are "restricted securities" and may be resold in
        the
        public market only if registered or pursuant to an exemption from registration.
        Some of these shares may be resold under Rule 144.
  22
  ***Our
        Common Stock May Be Affected By Limited Trading Volume And May Fluctuate
        Significantly, Which May Affect Our Shareholders' Ability To Sell Shares
        Of Our
        Common Stock.***
  Prior
        to
        this filing, there has been a limited public market for our Common Sock and
        there can be no assurance that a more active trading market for our Common
        Stock
        will develop. An absence of an active trading market could adversely affect
        our
        shareholders' ability to sell our Common Stock in short time periods, or
        possibly at all. Our Common Stock has experienced, and is likely to experience
        in the future, significant price and volume fluctuations, which could adversely
        affect the market price of our Common Stock without regard to our operating
        performance. In addition, we believe that factors such as quarterly fluctuations
        in our financial results and changes in the overall economy or the condition
        of
        the financial markets could cause the price of our Common Stock to fluctuate
        substantially. These fluctuations may also cause short sellers to enter the
        market from time to time in the belief that we will have poor results in
        the
        future. We cannot predict the actions of market participants and, therefore,
        can
        offer no assurances that the market for our Common Stock will be stable or
        appreciate over time. The factors may negatively impact shareholders' ability
        to
        sell shares of our Common Stock.
  ***The
        Company may be subject to litigation.***
  The
        Company may be subject to claims involving how the Company conducts its
        business. Any such claims against the Company may affect its business, results
        of operations and financial conditions. Such claims, including those without
        merit, could require the Company to pay damages or settlement amounts and
        would
        require a substantial amount of time and attention from the Company’s senior
        management as well as considerable legal expenses. Although the Company does
        not
        anticipate that its activities would warrant such claims, there can be no
        assurances that such claims will not be made.
  ***The
        Company lacks accounting and reporting controls.***
  The
        Company’s Chief Financial Officer (the “CFO”) is solely responsible for the
        accounting and reporting functions for the Company and outsources certain
        of its
        accounting and finance functions to an independent third party. As a result,
        the
        Company currently has limited segregation of duties regarding the Company’s
        accounting and reporting functions. Management recognizes this limited
        segregation of duties as a potential deficiency in the Company’s internal
        controls and is implementing procedures to mitigate this deficiency.
  ***Government
        regulation of healthcare creates risks and challenges with respect to the
        Company’s compliance efforts and business strategies.***
  The
        healthcare industry is highly regulated and is subject to changing political,
        legislative, regulatory and other influences. Existing and new Federal and
        state
        laws and regulations affecting the healthcare industry could create unexpected
        liabilities for the Company, cause the
        Company to incur
        additional costs and restrict the
        Company’s operations. Many healthcare laws are complex and their application to specific
        products and services may not be clear. In particular, many existing healthcare
        laws and regulations, when enacted, did not anticipate the healthcare products
        and services that the
        Company provides. However, these laws and regulations may nonetheless be applied
        to the
        Company’s products
        and services. As
        an
        international company, the Company may conduct business in a number of countries
        and thus may be subjected to local business practices, laws and regulations.
        The
        Company's increasing penetration into the Chinese market in particular is
        a
        significant risk to our business. Management’s
        failure to accurately anticipate the application of these laws and regulations,
        or other failures to comply, could create liability, result in adverse publicity
        and negatively affect our businesses. Some of the risks the
        Company faces
        from healthcare regulation are as follows:
  *·*
              *Anti-kickback
                  Laws*
  There
        are
        federal and state laws that govern patient referrals, physician financial
        relationships and inducements to healthcare providers and patients. The federal
        healthcare programs anti-kickback law prohibits any person or entity from
        offering, paying, soliciting or receiving anything of value, directly or
        indirectly, for the referral of patients covered by Medicare, Medicaid and
        other
        federal healthcare programs or the leasing, purchasing, ordering or arranging
        for or recommending the lease, purchase or order of any item, good, facility
        or
        service covered by these programs. Many states also have similar anti-kickback
        laws that are not necessarily limited to items or services for which payment
        is
        made by a federal healthcare program.
  23
  The
        laws
        in this area are broadly written and it is often difficult to determine
        precisely how the laws will be applied in specific circumstances. Penalties
        for
        violating the federal anti-kickback law include imprisonment, fines and
        exclusion from participating, directly or indirectly, in Medicare, Medicaid
        and
        other federal healthcare programs. Any determination by a state or federal
        regulatory agency that any of the
        Company’s practices violate any of these laws could subject the
        Company to civil
        or criminal penalties and require the Company to change or terminate some
        portions of its business and could have an adverse effect on the
        Company’s business. Even an unsuccessful challenge by regulatory authorities of the
        Company’s practices could result in adverse publicity and be costly for the
        Company to
        defend.
  *·*
              *Medical
                  Professional Regulation*
  The
        practice of most healthcare professions requires licensing under applicable
        state law. In addition, the laws in some states prohibit business entities
        from
        practicing medicine. If a state determines that some portion of the
        Company’s business
        violates these laws, it may seek to have the Company discontinue those portions
        or subject the
        Company to
        penalties or licensure requirements. Any determination that the
        Company is a
        healthcare provider and has acted improperly as a healthcare provider may
        result
        in liability to the
        Company .
  ***The
        Company faces potential liability related to the privacy and security of
        personal information it collects from consumer and healthcare professionals
        through its Web sites.***
  Internet
        user privacy has become a major issue both in the United States and abroad. The
        Company has
        privacy policies posted on its website that the
        Company believes
        comply with applicable laws requiring notice to users about the
        Company’s information collection, use and disclosure practices. However, whether and
        how
        existing privacy and consumer protection laws in various jurisdictions apply
        to
        the Internet is still uncertain and may take years to resolve. Any legislation
        or regulation in the area of privacy of personal information could affect
        the
        way the
        Company operates
        its website and could harm its business. Further, the
        Company cannot
        assure you that the privacy policies and other statements on its website
        or its
        practices will be found sufficient to protect the
        Company from
        liability or adverse publicity relating to the privacy and security of personal
        information.
  Under
        the
        Health Insurance Portability and Accountability Act of 1996, or HIPAA, Congress
        established a set of federal national privacy standards for the protection
        by
        health plans, healthcare clearinghouses, healthcare providers and their business
        associates of individually identifiable health records. While the
        Company’s members
        own and control their own personal health records, the
        Company’s maintenance of these records using MyMedVault TM may
        subject the
        Company to HIPAA
        regulations. Furthermore, legislation regarding HIPAA is evolving and often
        confusing as it applies to new businesses such as the
        Company .
        Violation of HIPAA could result in substantial penalties that could adversely
        affect the
        Company’s future.
  **Additional
        Information**
 
 We
        are
        obligated to file reports with the SEC pursuant to the Securities Exchange
        Act
        of 1934, as amended, (the “Exchange Act”). The public may read and copy any
        materials that we file with the SEC at the SEC’s Public Reference Room at 100 F
        Street, N.E., Washington, D.C. 20549. The public may obtain information on
        the
        operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
        The
        SEC maintains an Internet site that contains reports, proxy and information
        statements, and other information regarding issuers that file electronically
        with the SEC. We file electronically with the SEC. The address of that site
        is http://www.sec.gov .
  24
  **General
        Discussion on Results of Operations and Analysis of Financial
        Condition**
  **Overview**
  **Corporate
        History**
  Patients
        & Physicians, Inc. (formerly known as Finity Holdings, Inc.) (“P&P”),
        was organized on February 5, 1993. Finity Holdings, Inc. formerly operated
        through two wholly owned subsidiaries, Finity Corporation, a Texas corporation,
        and Fi-Scrip, Incorporated, a Nevada corporation ("Fi-Scrip"). Finity Holdings,
        Inc. sold all of its stock in Finity Corp. and Fi-Scrip effective June 5,
        2001.
 
 On
        June
        27, 2006, P&P closed an Exchange Agreement (the "Share Exchange") with all
        of the stockholders of Flagship Patient Advocates, Inc. (formerly known as
        Flagship Healthcare Management, Inc.) ("Flagship") whereby P&P acquired all
        of the issued and outstanding capital stock of Flagship and Flagship became
        a
        wholly-owned subsidiary of P&P. Upon completion of the Share Exchange,
        Flagship’s stockholders controlled approximately 99% of the then issued and
        outstanding common stock. Prior to the Share Exchange, P&P was a shell
        company. Subsequent to the Share Exchange (see below), Flagship’s business
        activities were the activities of P&P. As a result of these factors, this
        transaction has been treated as a reverse merger, and a capital transaction,
        equivalent to the issuance of stock by Flagship for P&P’s net assets and,
        accordingly, the historical financial statements prior to June 27, 2006 are
        those of Flagship. All shares and per share data prior to the Share Exchange
        have been restated to reflect the stock issuances and the effect of the closing
        of the Share Exchange.
 
 U.S.
        Open
        Healthcare Management, Inc. (“USOH”) was incorporated under the laws of the
        State of New York on July 9, 2002. Flagship was incorporated under the laws
        of
        the State of Delaware on February 11, 2004. On February 18, 2004, USOH entered
        into an Agreement and Plan of Merger (the “Merger”) with Flagship. All of the
        outstanding shares of USOH common stock were converted into Flagship common
        stock, and the net assets of USOH were contributed to Flagship.
 
 In
        connection with the Share Exchange, the stockholders of Flagship acquired
        the
        majority of the voting shares of P&P, and P&P will carry on the business
        of Flagship, and the officers and directors of Flagship became the officers
        and
        directors of P&P. Therefore, the transaction is being accounted for as
        Flagship being the accounting acquirer (legal acquiree) and P&P being the
        accounting acquiree (legal acquirer). Since at the closing P&P was a
        non-operating shell corporation no longer meeting the definition of a business
        as defined in EITF Consensus 98-3, Determining Whether a Nonmonetary Transaction
        Involves Receipt of Productive Assets or of a Business, the transaction is
        equivalent to Flagship issuing stock for the net liabilities of P&P,
        accompanied by a recapitalization. The accounting will be identical to that
        resulting from a reverse acquisition, except that there will be no adjustments
        to the historic carrying values of the assets and liabilities.
  **Going
        Concern**
  Our
        consolidated financial statements have been prepared assuming we will continue
        as a going concern. We have experienced net losses from operations of $7,599,177
        and $6,509,189 for the year ended December 31, 2005 and for the six months
        ended
        June 30, 2006, respectively. In addition, we had a working capital deficit
        of
        $1,109,287 at June 30, 2006. These factors, among others, raise substantial
        doubt about our ability to continue as a going concern. Our financial statements
        do not include any adjustment that might result from the outcome of this
        uncertainty. Assurances cannot be given that adequate financing can be obtained
        to meet our capital needs. If we are unable to generate profits and unable
        to
        continue to obtain financing to meet our working capital requirements, we
        may
        have to curtail our business sharply or cease operations altogether. Our
        continuation as a going concern is dependent upon our ability to generate
        sufficient cash flow to meet our obligations on a timely basis to retain
        our
        current financing, to obtain additional financing, and, ultimately, to attain
        profitability. Should any of these events not occur, we will be adversely
        effected and we may have to cease operations.
  25
  **Critical
        Accounting Policies**
  **Revenue
        Recognition**
  We
        derive
        revenue from the sale of memberships to individuals and institutions for
        access
        to its healthcare service offerings.
  The
        Company recognizes revenues in accordance with SEC Staff Accounting Bulletin
        No.
        101, *Revenue
        Recognition in Financial Statements* (“SAB
        No. 101”) as amended by SEC Staff Accounting Bulletin No. 104, *Revenue
        Recognition* ,
        revised
        and updated (“SAB No. 104”). SAB No. 104 stipulates that revenue generally is
        realized or realizable and earned, once persuasive evidence of an arrangement
        exists, delivery has occurred or services have been rendered, the fee is
        fixed
        or determinable and collectibility is reasonably assured. The Company sells
        memberships to individuals and institutions for access to its healthcare
        service
        offerings. The Company recognizes revenue ratably over the life of the
        membership.
  To
        date,
        the Company memberships have been marketed only through its in-house sales
        force
        and a network of independent brokers.
  In
        the
        broker channel, the Company recognizes revenue when the broker distributor
        sells
        the Company’s memberships, provided we have satisfied all other terms and
        conditions.
  **Stock-Based
        Compensation**
  We
        have
        adopted SFAS No. 123(R) (revised 2004), *Share-Based
        Payment* (“SFAS
        No. 123(R)”), which requires the recognition of compensation expense for
        employee stock options and other share-based payments. SFAS No. 123(R) was
        issued in December 2004. Under this method of adoption, expense related to
        employee stock options and other share-based payments is recognized over
        the
        relevant service period based on the fair value of each stock option
        grant.
  We
        have
        accounted for non-employee compensation expense in accordance with Emerging
        Issues Task Force (“EITF”) Issue No. 96-18, *Accounting
        for Equity Instruments That Are Issued to Other Than Employees for Acquiring,
        or
        in Conjunction with Selling, Goods or Services* (“EITF
        96-18”), which requires non-employee stock options to be measured at their fair
        value as of the earlier of the date at which a commitment for performance
        to
        earn the equity instruments is reached (“performance commitment date”) or the
        date at which performance is complete (“performance completion date”).
        Accounting for non-employee stock options, which involve only performance
        conditions when no performance commitment date or performance completion
        date
        has occurred as of the interim financial reporting date, requires measurement
        at
        the instruments then-current fair value.
  The
        Company has followed the guidance outlined in FASB Interpretations (“FIN”) No.
        28, *Accounting
        for Stock Appreciation Rights and Other Variable Stock Option or Award
        Plans* (“FIN
        28”), as it relates to computing expense when appreciation rights vest over
        time. As of June 30, 2006, the Company accounted for 2,355,000 options under
        the
        guidance of EITF 96-18.
  The
        fair
        value of each stock option grant to employees is estimated on the date of
        grant.
        The fair value of each stock option grant to non-employees is estimated on
        the
        applicable performance commitment date, performance completion date, or interim
        financial reporting date.
  **Results
        Of Operations For The Three Months Ended June 30, 2006 Compared To The Three
        Months Ended June 30, 2005**
 
 The
        Company’s activities to date have been focused on developing a membership-based
        specialty healthcare advocacy company providing physician referrals, on a
        priority basis, and emergent care needs to its members, all linked by a
        sophisticated management system and is still a development stage company.
        Our
        operating activities to date have consisted primarily of developing our
        membership and physician databases and establishing our physician network.
        The
        Company had revenues of $10,172 and total net expenses of $3,482,362 for
        the
        three months ended June 30, 2006 and no revenues and total net expenses of
        $2,682,525 for the three months ended June 30, 2005.
  26
  **Revenues**
 
 Our
        total
        revenue increased to $10,172 for the three months ended June 30, 2006 versus
        $0
        for the three months ended June 30, 2005. The increase is directly related
        to
        costs associated with membership sales which began in late 2005.
  **Costs
        of Revenue**
 
 Our
        total
        costs of revenue increased to $1,523 for the three months ended June 30,
        2006
        versus $0 for the three months ended June 30, 2005. The increase is directly
        related to costs associated with membership sales which began in late 2005.
 
 **Total
        Expenses**
 Total
          operating expenses for the three months ended June 30, 2006 were $2,308,331
          compared to $2,685,448 for the three months ended June 30, 2005, a decrease
          of
          377,117, or 14.04% These expenses incurred during the three months ended
          June
          30, 2006 and 2005 are set forth below in further detail.
 
 Membership
          services. Membership services expenses increased by $167,761, or 27.9%,
          to
          $769,156 for the three months ended June 30, 2006 versus $601,395 for the
          three
          months ended June 30, 2005. This increase was principally due to the
          amortization of stock options and costs associated with paying stipends
          to
          Regional Medical Directors in the three months ended June 30, 2006. In
          addition,
          there were increased travel costs incurred during the quarter related to
          expanding the network and business overseas.
 
 Selling,
          general and administrative expenses. Selling, general and administrative
          expenses decreased by $529,945, or 26.04%, to $1,505,178 for the three
          months
          ended June 30, 2006 as compared to $2,035,123 for the three months ended
          June
          30, 2005. This decrease was principally attributable the reduction in certain
          compensation charges incurred in 2005 not incurred in 2006. Expense increases
          were also related to the amortization of stock options and the commencement
          of
          our sales campaign to acquire new members. This included design and printing
          costs associated with attendance at conferences and trade shows and promotional
          materials offset by expense reductions incurred in the same period last
          year
          relating to development of brand strategy. In addition, in 2006 selling,
          general
          and administrative expenses included $240,000 related to the acquisition
          of
          P&P, which under accounting principles generally accepted in the United
          States, was charged to operations in the period acquired.
 
 Depreciation
          and amortization expense. Depreciation and amortization expense decreased
          by
          $14,933, or 30.52%, to $33,997 for the three months ended June 30, 2006
          versus
          $48,930 for the three months ended June 30, 2005. This decrease was due
          to the
          write off of a previously recorded liability due to a software vendor that
          was
          written off in the current quarter against depreciation and amortization.
          The
          software had been written off in a prior period.
 
 Interest
          income. Interest income increased by $11,295 to $14,343 for the three months
          ended June 30, 2006 as compared to $3,048 for the three months ended June
          30,
          2005. This increase was due to having cash on hand during the current three
          months ended June 30, 2005 related to the Convertible Note financing that
          closed
          in January 2006.
 
 Amortization
          of debt discounts and debt issuance costs. Amortization of debt discounts
          and
          debt issuance costs increased to $1,008,454 for the three months ended
          June 30,
          2006 versus $0 for the same period last year. This increase was due to
          the
          amortization of the discounts on the Convertible Note financing that closed
          in
          January 2006. The costs allocated to the debt are charged to operations
          over the
          life of the debt using the interest method, which produces a constant periodic
          rate of return.
  27
  Interest
        expense. Interest expense increased to $179,920 for the three months ended
        June
        30, 2006 versus $125 for the three months ended June 30, 2005. This increase
        is
        due to interest expense incurred in the current period related to the
        Convertible Notes issued in January 2006.
 
 **Net
        loss**
 
 As
        a
        result of the foregoing, for the three months ended June 30, 2006, net loss
        increased by $791,188 or 29.49%, to a net loss of $3,473,713, compared to
        a net
        loss of $2,682,525 for the corresponding period in 2005.
 
 **Results
        of Operations For The Six Months Ended June 30, 2006 Compared To The Six
        Months
        Ended June 30, 2005**
 
 The
        Company had revenues of $17,186 and total net expenses of $6,522,654 for
        the six
        months ended June 30, 2006 and no revenues and total net expenses of $4,132,167
        for the six months ended June 30, 2005.
 
 **Revenue**
 
 For
        the
        six months ended June 30, 2006, we generated $17,186 in revenue compared
        to $0
        for the six months ended June 30, 2005. This increase is due to the commencement
        of sales of memberships during 2005 and the first half of 2006. We are still
        in
        the stages of early product and services development and we do not expect
        to
        generate significant revenue from our various product lines until 2007.
 
 **Costs
        of Revenue**
  Our
        total
        costs of revenue increased to $3,721 for the six months ended June 30, 2006
        versus $0 for the six months ended June 30, 2005. The increase is directly
        related to costs associated with membership sales which began in 2005 and
        the
        first half of 2006.
  **Total
        Expenses**
 
 Total
        operating expenses for the six months ended June 30, 2006 were $4,625,174,
        compared to $4,135,386 for the six months ended June 30, 2005, an increase
        of
        $489,788 or 11.8%. The expenses incurred for 2006, as compared to 2005, are
        set
        forth in greater detail below and in the accompanying condensed consolidated
        financial statements attached.
 
 **Costs
        and Expenses**
  Membership
        services. Membership services expenses increased by $385,179, or 34.24%,
        to
        $1,510,250 for the six months ended June 30, 2006, versus $1,125,071 for
        the six
        months ended June 30, 2005. This increase was principally due to the increased
        wages and benefits related to an increase in personnel. We increased staff
        in
        order to provide products and services to our members as we begin to sell
        memberships. In addition, there were costs associated with paying stipends
        to
        Regional Medical Directors in the six months ended June 30, 2005. There were
        no
        such expenses in the same period of the prior year. We also incurred increased
        travel costs associated with expanding the network internationally as well
        as
        the amortization of stock options. These costs were partially offset by a
        reduction in one time licensure fess expenses incurred in 2005.
  Selling,
          general and administrative. Selling, general and administrative expenses
          increased by $150,690, or .05%, to $3,002,476 for the six months ended
          June 30,
          2006, as compared to $2,851,786 for the six months ended June 30, 2005.
          There
          were sales and marketing costs incurred related to marketing the Company’s
          products, including the design and printing costs associated with marketing
          materials, postage and handling costs associated with the distribution
          of this
          material, and contracting with outside consultants to develop brand strategy.
          In
          addition, there was an increase in expenses related to the amortization
          of stock
          options in 2006. In addition, selling, general and administrative expenses
          included additional legal and professional costs incurred associated with
          with
          being a public company as well as the acquisition cost of the shell company
          in
          the amount of $240,000, which under accounting principles generally accepted
          in
          the United States, was charged to operations in the period acquired. These
          increases were more than offset by certain compensation charges incurred
          in 2005
          not incurred in 2006.
  28
  Depreciation
          and amortization. Depreciation and amortization decreased by $73,410, or
          46.31%,
          to $85,119 for the six months ended June 30, 2006, versus $158,529 for
          the six
          months ended June 30, 2005. This decrease is due to the write off of certain
          assets no longer in use in 2005 charged to depreciation.
  Interest
          income. Interest income increased by $20,788 to $25,907 for the six months
          ended
          June 30, 2006, as compared to $5,119 for the six months ended June 30,
          2005.
          This increase was due to having cash on hand during the current year related
          to
          the Convertible Notes and the Term Notes (as defined below).
  Amortization
          of debt discounts and debt issuance costs. Amortization of debt discounts
          and
          debt issuance costs increased to $1,673,368 for the six months ended June
          30,
          2006, versus $0 for the same period last year. This increase was due to
          the
          amortization of the discounts on the Convertible Note financing. The costs
          allocated to the debt are charged to operations over the life of the debt
          using
          the interest method, which produces a constant periodic rate of
          return.
  Interest
        expense. Interest expense increased to $277,348 for the six months ended
        June
        30, 2006 versus $1,900 for the six months ended June 30, 2005. This increase
        is
        due to accrued interest expense related to the Convertible Notes and Term
        Notes
        (as defined below).
  **Net
        Loss**
 
 For
        the
        six months ended June 30, 2006, we had a net loss of $6,509,189, as compared
        to
        a net loss of $4,132,167 for the same period in 2005, an increase of $2,377,022,
        or 57.52%. The loss increased as we expanded operations in 2006, and increased
        our employee headcount, operating expenses and legal and professional fees.
        Net
        loss per common share increased from $0.00 in 2005 to $0.117 for 2006.
 
 **Liquidity
        And Capital Resources**
 
 At
        June
        30, 2006 the Company had a working capital deficit of $1,109,287, compared
        to a
        working capital deficit of $3,359,685 at December 31, 2005. The change is
        the
        result of the conversion of certain notes into the Convertible Notes and
        additional proceeds received at the closing. The Company allocated the proceeds
        from the Convertible Notes based on the computed relative fair values of
        the
        debt and stock instruments issued. The value of the beneficial conversion
        feature was limited to the amount of the proceeds allocated to the debt
        component of the Convertible Notes. The aggregate amounts allocated to the
        warrants, equity instruments and beneficial conversion feature of $7,100,000,
        were recorded as debt discounts at the date of issuance and are being amortized
        to interest expense over the terms of the Convertible Notes. The initial
        aggregate carrying value of the Convertible Notes at the time of closing
        was $0
        after the debt discounts. The increase in working capital due to the conversion
        of the Convertible Notes was offset by $4,000,000 of Term Notes provided
        to the
        Company by a current investor in June 2006 (the “Term Notes”). The Term Notes
        bear interest at the prime rate. The Company is currently seeking additional
        financing, and upon entry into such financing, the Term Notes will convert
        into
        such financing on the same terms and conditions as such financing. Net cash
        used
        in operating activities was $4,261,752 for the six months ended June 30,
        2006,
        versus $2,876,804 for the six months ended June 30, 2005. This increase is
        principally due to the increase in expenses incurred in operations. Overall
        expenses increased principally due to the increase in operating expenses
        incurred in membership services, sales and marketing and administration,
        as the
        Company prepares to sell its product and deliver products and service to
        members.
 
 Net
        cash
        used in investing activities was $40,649 for the six months ended June 30,
        2006,
        versus $410,378 for the six months ended June 30, 2005. For the six months
        ended
        June 30, 2005, investing activities included a one time purchase of IT equipment
        for the new office space, including computers for new personnel and the
        Company’s computer systems to meet the increased demands as the sale of
        memberships increase. The purchases of equipment in the six months ended
        June
        30, 2006 consisted primarily of additional computers.
  29
  Net
        cash
        provided by financing activities during the six months ended June 30, 2006
        was
        $7,972,525, versus $3,356,733 during the six months ended June 30, 2005.
        The
        increase of $4,615,792 resulted from the net proceeds of $4,232,695 from
        the
        closing of the Convertible Notes and proceeds of $4,000,000 from the Term
        Notes
        versus net proceeds of $3,346,733 from the closing of the Redeemable Series
        B
        Convertible Preferred Stock financing during the six months ended March 31,
        2005.
  **Item
        3. Controls and Procedures**
  **A.
        Evaluation of Disclosure Controls and Procedures:**
  Our
          disclosure controls and procedures are designed to ensure that material
          information relating to the Company are made known by others within the
          Company
          to our Chief Executive Officer (“CEO”), CFO and others in the Company involved
          in the preparation of our annual report and our quarterly reports. The
          Company
          has evaluated, with the participation of the Company’s CEO and CFO, the
          effectiveness of the design and operation of the Company’s disclosure controls
          and procedures as of June 30, 2006, pursuant to Exchange Act Rule 15d-15
          and
          were determined not to be effective. Based upon that evaluation, the CEO
          and CFO
          identified deficiencies that existed in the design or operation of our
          internal
          control over financial reporting that it considered to be "material weaknesses."
          The Public Company Accounting Oversight Board defined a material weakness
          as a
          "significant deficiency or combination of significant deficiencies that
          results
          in more than a remote likelihood that a material misstatement of the annual
          or
          interim financial statements will not be prevented or detected."
 The
        material weakness identified relate to:
 
 ·
              the
                  lack of sufficient knowledge and experience among the internal
                  accounting
                  personnel regarding the application of US GAAP and SEC
                  requirements;
  ·
              insufficient
                  written policies and procedures for accounting and financial reporting
                  with respect to the current requirements and application of US
                  GAAP and
                  SEC disclosure requirements; and
  ·
              segregation
                  of duties, in that we had only one person performing all
                  accounting-related duties.
  Notwithstanding
        the existence of this material weakness in our internal control over financial
        reporting, our management believes, including our Chief Executive Officer
        and
        Chief Financial Officer that the condensed consolidated financial statements
        included in this report fairly present in all material respects our financial
        condition, results of operations and cash flows for the periods presented.
  **B.
        Changes in Internal Control over Financial Reporting:**
 
 There
        were no changes in our internal controls over financial reporting identified
        in
        connection with our evaluation of these controls during the period covered
        by
        this report that could have significantly affected those controls subsequent
        to
        the date of the evaluation referred to in the previous paragraph, including
        any
        correction action with regard to significant deficiencies and material
        weaknesses.
  30
  **PART
        II**
 **OTHER
        INFORMATION**
 **Item
        1. Legal Proceedings.**
 
 A
        former
        independent contractor (the “Plaintiff”) has filed a lawsuit against the
        Company, among others. The Plaintiff alleges that he was promised employment
        with Flagship and performed services for Flagship based on these promises.
        The
        Plaintiff is seeking compensatory and punitive damages, including the issuance
        of additional shares of stock for these services and attorney fees in an
        aggregate amount of approximately $1,800,000. The Company believes this lawsuit
        is without merit and intends to defend it vigorously. In management’s opinion
        the final resolution of this matter will not have material impact on the
        consolidated financial position or results of operations of the
        Company.
  **Item
        2. Unregistered Sales of Equity Securities and Use of
        Proceeds.**
 
 None.
 
 **Item
        3. Defaults Upon Senior Securities.**
 
 None.
  **Item
        4. Submission of Matters to a Vote of Security Holders.**
 
 None.
  **Item
        5. Other Information.**
 
 None.
  **Item
        6. Exhibits.**
  ExhibitNumber
              Description of
                Document31.1
              Rule 13a-14(a)/15d-14(a) Certification
                (CEO)**31.2
              Rule 13a-14(a)/15d-14(a) Certification
                (CFO)**32.1
              Section 1350 Certification
                (CEO)**32.2
              Section 1350 Certification
                (CFO)**
  ----------
 **
        Filed
        herewith.
 
 31
  **SIGNATURES**
 
 In
        accordance
        with the requirements of the Exchange Act, the registrant caused this report
        to
        be signed on its behalf by the undersigned, thereunto duly
        authorized.
  **PATIENTS
                & PHYSICIANS, INC.**Date: August
                14, 2006
              By:
              /s/ Fred
                F.
                NazemFred
                F. Nazem, Chief Executive Officer and
                CharimanDate: August 14, 2006
              By:
              /s/ Philip E. BarakPhilip
                E. Barak, Chief Financial Officer
  32